Disciplining Role of Auditor Tenure and Mandatory Auditor Rotation

ABSTRACT This study addresses the international debate over whether rotation of audit firms should be mandatory. Mandatory rules have been adopted by European Union, but these not established in United States. Proponents policy believe that a long-tenure auditor-client relationship leads to auditor building an excessive economic bond with client, which may then erode independence. Motivated this claim, I build theoretical model compares incentives issue independent reports under regimes and without mandatory rotation. The demonstrates conditions could actually impair independence, contrary popular view.